State Net Capitol Journal – August 20, 2012

Budget & Taxes

MA LEADS WAY AGAIN ON HEALTH REFORM: Massachusetts' 2006 health care reform law - upon which the federal Affordable Care Act was patterned - has arguably achieved its primary aim of reducing the number of residents without health coverage; the number of uninsured in the state dropped from 6.4 percent in 2006 to 1.9 percent in 2010, according to the Massachusetts Department of Healthcare Finance and Policy (DHCFP).

Rising health care costs have threatened to undermine the law almost since its enactment. In fact, health care costs have been a problem in every state, although none have gotten very far with reining them in. Minnesota passed a law in 2008 regulating some health care costs, for example, and Maryland imposes limits on hospital budgets. But Massachusetts is now taking a crack at addressing the issue in a more comprehensive way. A bill signed this month by Gov. Deval Patrick (D), aims to curb costs and save the state $200 billion over the next 15 years by shifting the entire health care system away from traditional fee-for-services medicine and imposing limits on the growth of health care costs.

The law "cracks the code on cost" by "ushering in the end of fee-for-service in Massachusetts in favor of better care and lower costs," Patrick said in a statement.

The 349-page measure (SB 2400), which takes effect Nov. 15, will limit the growth of health care costs to the growth of Massachusetts' gross state product (GSP) from 2013 through 2017. For the five years after that, the cap will drop to a half a percentage point below the state's GSP growth rate, before returning to the GSP rate in 2022.

The law will also require state-funded health care programs, including Medicaid, public employee health care, and Commonwealth Care, the state's health plan for low-income residents, to move at least 80 percent of their beneficiaries out of fee-for-service plans into "alternative" delivery payment systems, such as medical homes, managed care and accountable care organizations, by 2014. Additionally, the law will limit malpractice lawsuits and levy $225 million in surcharges on insurance companies and large hospitals to help cover the cost of prevention programs and other initiatives.

The law's cost caps have attracted the most attention. Health care spending in Massachusetts has climbed to between 6 and 7 percent per year. Paring it back to the 3 to 4 percent annual rise in the state's GSP will also mean limiting the number of jobs available in the state's vital medical industry. It will also likely force doctors, hospitals and other health care providers to cut their costs by nearly half.

Still, the law has relatively few critics. It was widely supported by the health care community and was passed almost unanimously by state lawmakers. Most of the complaints have come from free-market conservatives who argue the law will only burden the health care system with more bureaucracy. For instance, Joshua Archambault, a health care analyst at the Pioneer Institute, reportedly counted 941 instances of the bill mandating that something "shall" be done and 25 different penalties, fines and surcharges.

But even Patrick said when he unveiled the legislation last year that he could see why his predecessors "decided to put cost control off to another day - because if you think access was hard, wait until you take on cost control."

Other states aren't likely to rush in to find out for themselves, especially when they can instead sit back and see how Massachusetts' latest health reform experiment goes first. (STATELINE.ORG, MASSACHUSETTS DEPARTMENT OF HEALTHCARE FINANCE AND POLICY, FORBES, BOSTON GLOBE, STATE NET)

NJ LOTTERY ON MARKET: The nation's eighth largest state lottery is up for sale. New Jersey officials requested bids from private companies this month to take over the state's lottery marketing, ticket sales and game development. The price tag: $120 million now and hundreds of millions more over the next 15-plus years.

For players, privatization could mean more games and possibly online play. For ticket sellers, it could mean more competition; the state suggested in its bid request that a private operator could add another 600 outlets, including chain stores, to the 6,500 already selling tickets. For the winning bidder, it could mean a chance to earn 10 times the amount of its $120 million down payment between now and 2029 when the contract would be up.

"They would only earn that kind of money if they generated significant revenue growth that would be well beyond what the state is on track to do on its own," said Bill Quinn, a spokesman for the state's Treasury Department.

To reach that dollar amount, lottery revenue growth would have to top 7.5 percent, a feat the state has accomplished only five times in the last 25 years - and never for consecutive years in that time.

The idea of privatizing the lottery isn't new to New Jersey. Former Gov. Jon S. Corzine's (D) administration explored it, and a task force called by Gov. Chris Christie (R) suggested it a couple of years ago.

Lottery privatization also isn't new to other states. Illinois outsourced its lottery last year. And similar plans are in the works in Indiana and Pennsylvania.

What is new, however, is that New Jersey is looking to privatize a lottery that is already successful. It's the state's fourth largest revenue producer, with sales of $313 per capita last year.

"It doesn't surprise me, given that New Jersey privatized the horse tracks.... But the New Jersey Lottery is a fairly well performing lottery, so you don't often see privatization efforts being made toward fairly well performing lotteries," said Patricia McQueen, a gambling industry analyst for the Wagering Resource, based in Massachusetts.

But with the big up-front payment, the cash-strapped state is basically looking to win the lottery itself. And it's moving forward quickly; it could turn over the operation as early as March. (ASBURY PARK PRESS)

BUDGETS IN BRIEF: CALIFORNIA sold nearly a quarter of the $10 billion in notes it offered to individual investors last Monday, the first day of the state's largest short-term borrowing in two years. On the first day of the state's last such offering, last September, investors snapped up twice as much of the $5.4 billion total, despite a lower yield rate at that time of up to 0.4 percent, compared to last week's rate of as much as 0.55 percent (BLOOMBERG). • Also in CALIFORNIA, the number of University of California employees earning more than $1 million a year has quadrupled in the last five years, while budgets have been cut and tuition has risen. Seventeen of last year's 22 million-dollar earners were doctors or administrators at UC hospitals (SACRAMENTO BEE). • CONNECTICUT has agreed to give Bridgewater Associates, the world's largest hedge fund, a $25 million "forgivable" 10-year loan at 1 percent interest to help finance construction of a new $750 million headquarters in Stamford. The state will also provide the company, currently based in Westport, up to $5 million for job training and $80 million in tax credits (BLOOMBERG). • MARYLAND Gov. Martin O'Malley (D) signed legislation (SB 1) authorizing a referendum in November on whether to expand gambling in the state (BALTIMORE SUN, STATE NET). • MICHIGAN lawmakers approved legislation last week (SB 1040) that would require school employees to pay 20 percent of their health care costs (DETROIT FREE PRESS). • NORTH DAKOTA Gov. Jack Dalrymple (R), whose oil-rich state has a billion-dollar budget surplus, called for $545 million in property, individual income and corporate income tax cuts last Monday, as well as a 50 percent cut in the average school district tax levy (BISMARCK TRIBUNE).

- Compiled by KOREY CLARK

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